HOUSE VS. CONDO: WEIGHING VALUES AND EXPECTATIONS
How do the two investments stack up? You may be surprised, writes Dennis Faulkner.
If you bought a single-family home in 2008, has your home’s value increased more than a condo since then?
Ten years ago the first baby boomers had not yet reached retirement age (65). How many of us thought condo demand would increase and drive up prices as the baby boomers started to retire and downsize?
With this projected increase in demand, you would think the smart move 10 years ago would have been to invest in condos. The numbers, however, paint a different picture.
According to the Realtors Association of Edmonton, the average price of a condo in the Edmonton area in 2008 was $254,372. In January of 2016 the average price of a condo was $246,727. That represents a three per cent drop in almost 10 years. Looking at the numbers from 2013, the average sale price was $215,981, so condo values have recovered since then.
In comparison, the average price of a single-family home in the capital region in 2008 was $375,714. Today the average price is $416,859, which is an increase of 11 per cent. That’s a difference of 14 per cent in the value of single-family detached homes versus condos.
If you purchased a single-family detached home for $400,000 in 2008, the home should be worth about $444,000 today, provided it’s in similar condition. A condo purchased for $400,000 in 2008 would be worth about $388,000 today.
The biggest reason for the difference in value gains is oversupply. The construction period for condos can be five years or more, making it difficult for developers to quickly adjust to changes in market conditions. By comparison, single-family homes are constructed in about 10 months, making it easier to quickly adjust supply when needed.
Alberta’s immigration and housing prices are closely tied. During the last 10 years, Alberta has seen an influx of young workers with young families, and often these families have a second vehicle, as well as recreational vehicles (boats, trailers, ATVs. etc.). Single-family homes offer yards and garages to accommodate these items, whereas condo living will often offer one parking stall, which is not enough to accommodate many young families.
Another factor affecting condo values has been consumer confidence. A few particularly large special assessment cases have hit the news during the last few years, causing consumers to fear the unknown.
We are seeing many buyers choosing half duplexes over condos, simply so they have increased control over decision-making. Not surprisingly, half duplexes are projected to increase in value this year.
You may have noticed many baby boomers haven’t rushed out and sold their homes to downsize to a condo upon retirement. It appears our seniors quite prefer their single-family homes, and are tending to stay in them longer than many had expected.
Seniors, when downsizing, are often drawn to the single-family half duplexes, but this time with a twist — adult bungalow-style half duplexes. These offer singlefamily living, with a homeowners association to tend to the lawn and snow removal for a fee.
This lower-than-expected level of demand for condos has some developers switching their condo projects to rentals, and at least one developer is offering rent-toown incentives.
A statistic that can provide insight into price trends is the sale-to-listing ratio. In January 2017, the sale-to-listing ratio for single-family detached homes was 39 per cent, which means that for every 100 homes that are listed, 39 sell. (In a really hot market, like we had in 2014, the sales-to-listing ratio was 52 per cent).
For condos, the sale-to-listing ratio for January was 26 per cent. This statistic indicates singlefamily detached homes are still doing significantly better than condos.
If you choose not to buy property, you still have to pay rent to live somewhere, which can often cost more than owning a condo. Looking 25 years into the future, even if condo prices didn’t go up, at least you will have paid your condo mortgage off. That still puts buyers ahead of renters, who would make monthly payments for 25 years without any equity to show for it.
You would think the smart move 10 years ago would have been to invest in condos. The numbers, however, paint a different picture.